100. Why did the United States and Germany withdraw
from the ASRAAM programme? Was that because of concern about technical
feasibility?
(Sir Robert Walmsley) No. It is history now and I
suppose lots of people would have their own perspective on it.
From my point of view, there is a great difficulty in persuading
the United States forces, for lots of good reasons, to rely for
a major weapons system on offshore procurement. I think we went
into the deal that Europe would provide the short range weapons
and America would provide the medium range weapons, in retrospect,
with rather starry eyes about the willingness, both industrially
and militarily, of the United States to rely on Europe for a short
range, self-defence weapon. I think it fell apart for industrial
reasons and perhaps for military reasons of control of capability
as well. Subsequently, in late 1996, we offered a very detailed
specification of ASRAAM to the United States military for them
to consider it as a potential candidate for what I think was then
called the AIM9X programme, which was a sort of Sidewinder successor.
It did not succeed.

101. What about the Germans?
(Sir Robert Walmsley) I do not know.

102. Why do not the Germans need ASRAAM for
their Eurofighters?
(Sir Robert Walmsley) IRIS-T is their own national
missile.

103. That is the national alternative?
(Sir Robert Walmsley) That is the German missile.

104. Does that have problems?
(Sir Robert Walmsley) It is wholly inappropriate for
me to comment.

Chairman

105. Any missile named Iris has problems.
(Sir Robert Walmsley) It is the name of the Canadian
solution for Bowman as well.

Mr Brazier

106. Supposedly the merits of ASRAAM were quoted
as one of the key reasons why we did not need to have a cannon
on Eurofighter. We seem to be having these problems with the missile.
We are not sure yet when it will eventually come into play. Are
you really sure that it is wise to have a fighter without a cannon
on it?
(Vice-Admiral Sir Jeremy Blackham) I do not think
I have anything to add to my previous position on this. I anticipate
that ASRAAM will be in service when Eurofighter meets its in-service
datesindeed, well before that. I do not see anything which
would cause me to change my view on that at all. I am confident,
yes.

Mr Viggers: The Admiral's reply is entirely
fair from his point of view and I think we should also record
that those of us who believe that it is a mistake not to have
a cannon on the Eurofighter have not changed our view either.

Chairman

107. When the decision to go for Meteor was
made, we said, "We are not part of the process of decision
making. At least we would like to be told why the decision was
made for one and not the other", which would have been really
helpful. As any Defence Committee worth its salt, we at least
would have been pleased to have known the decision making process
and why one was chosen, not the other. You said, "I cannot
brief you, Chairman, because we have not debriefed Raytheon."
That was a year ago. Have you debriefed them? If you have, we
are not going to get a briefing in this Parliament but are we
going to get one in the next Parliament, because although this
is a programme in which a decision has been made it could have
rumbled on for some time. To save yourself further embarrassment
on this, if there are going to be any problemsthe Baroness's
letter is clearly a shot across the bow if ever I have seen onecan
you update us on whether after 12 months we are going to be briefed
on the decision or whether you are hoping we will have forgotten
that you gave us that assurance?
(Sir Robert Walmsley) I know you will not have forgotten,
Chairman. I have yet to discover evidence of the Committee forgetting
to come back to some point it has promised to come back to. Our
procedure is to brief companies formally once a contract is signed.
Competition is only formally concluded when a contract is signed.
At the same time, it would not be of a great deal of interest
to Raytheon to be briefed about Meteor once the contract was signed,
which will be later this year, because quite frankly the water
is so far down under the bridge that you can hardly find the people,
let alone the technical staff who are interested in it. I can
tell you that on the day we announced the decision I phoned the
appropriate senior executive in Raytheon to tell them the bad
news from their point of view. I do that always as a matter of
routine. I gave him an outline debrief and I gave him and some
of his staff an outline debrief in the United Kingdom about ten
days after that last summer. I have also added a bit more detail
in the time that has gone by. That senior executive has now left
Raytheon and joined another extremely reputable US defence contractor,
so he has passed out of my scenery really on this. I therefore
confirm that I am ready to provide the detail to the Committee
when we give our formal debrief to Raytheon. It seems an enormously
long time ago.

108. It is.
(Sir Robert Walmsley) It is. I absolutely accept that.
We have six countries in this programme, the Eurofighter partners,
plus Sweden and France. That gives a clue as to why Meteor turned
out not to be hugely more expensive, as a lot of people were certain
it would be, than taking ERAAM+, when we were only sharing costs
with one country. Sharing with six does not half cut down the
non-recurring costs. These are the brutal, top level points which
I talked to Raytheon about on the day. Please understand that
sharing with six they had not taken into their consideration sufficiently.
Secondly, an incremental programme is fine if you are signed up
to all the increments, but it is quite clear to Admiral Blackham's
staff and to the Royal Air Force that they want the full capability
as defined in Staff Requirement 1239, that ERAAM+ only offered
part of that and that may have kept the United States Air Force
very comfortable with their stealthy aircraft. Eurofighter is
not an inherently stealthy aircraft and needs a long reach. Meteor
provides that and we needed a secure route to providing a missile
with a long reach. In essence, that is the top level argument.

109. Will you sign the contract if you have
assurances that things are going to proceed reasonably with the
project? Is this the reason why it has not been signed, because
you want some assurances beforehand?
(Sir Robert Walmsley) Of course we do and we have
to bolt down all the contract terms and conditions with the companies,
including the milestones which have already been mentioned, of
which now three are completely settled and one we are quibbling
about. The reason is that we have to get six countries on board
and there is a famous phrase which has been used in this room
on many occasions: that involves work-share decisions, not that
we are running this programme on the basis of absolute, specific
work-share, but people have to be reasonably content. This is
an immense, trans-European, industrial endeavour to get that sorted
out. The formation of MBDA, the inclusion of France in the programme
and Spain, meaning that we have all four Eurofighter partners,
and Sweden providing the Gripen aircraft, which is a very good
test platform and means we do not have to devote Eurofighter development
aircraft to testing a lot of Meteor aircraft interfaces, has given
the programme a robustness which I feel comfortable about but
it does mean negotiating all the agreements, including things
like providing Gripen as test aircraft. Having negotiated an MOU
which is as near as ninepence now finalised, we are really trying
to get it signed at Le Bourget, but I do not know whether we are
going to succeed or not. That is the MOU. That has been a huge
piece of work. The contract is proceeding in parallel and will
be signed a few months after the MOU.

110. When you phoned the guy from Raytheon,
did you say, "I am sorry you lost but this is a political
decision. Europe could not afford to mess this up. That is why
we had to have it"? How did you explain that?
(Sir Robert Walmsley) I certainly did not tell him
that. It is probably what he believed but it is absolutely not
what happened. It is the same chap I have phoned up about other
losses and other wins in the past. I think they respected the
United Kingdom's processes. They do in the end regard us as competent
procurement professionals and, in the end, the American companiesI
have to pay enormous tribute to themare very ready to see
it as water under the bridge. They are not continually revisiting
past defeats or victories.

Chairman: It is right that you keep on
the company's back over Meteor. There are a lot of heads on the
chopping block, including most of the Members of this Committee,
so we give you what authority we can to ensure that the company
delivers on time and to the quality that is demanded. On to a
pretty easy one now. All we are talking about is buying and building
roll-on/roll-off ships. Mr Hepburn has a constituency interest.

Mr Hepburn

111. Yes, which I will declare now. Obviously,
the first question has to be what has gone wrong?
(Sir Robert Walmsley) I recognise this is a hugely
significant issue and I therefore want to make that absolutely
clear. If some of my responses might seem a little administrative,
it is not because I do not understand the seriousness of the point.
Not much has gone wrong. We had a very good competition to provide
a strategic sealift service, which was won fair and square by
AWSR, which effectively decodes as Andrew Weir Shipping. We announced
the winner last autumn. The prospects offered by a bid which they
had put to us, including four ships to be built in Germany and
two to be built at Harland & Wolff, were that we would provide
an earlier in-service date which effectively was 27 ship months
but has now translated into something better than that: two years
ahead of the planned in-service date. We had a good bid, offering
us the capability earlier than we expected. So far so good, last
autumn. A technicality involved in merchant ship building, which
is by no means a technicality to those involved but appears like
it to those outside, was that something called the Shipbuilding
Intervention Fund expired effectively on 31 December 2000. What
that effectively meant was we had to order ships by 31 December
2000 and they had to be completed I think by December 2003 in
order to secure varying levels of the Shipbuilding Intervention
Fund, seven per cent, as it happened, in Germany, nine per cent,
as it happened, in the United Kingdom, which meant that the bids
for the Ro-Ro benefited from the Shipbuilding Intervention Fund
providing the ship building contracts could be placed before 31
December. We succeeded in doing that but we were not contracting
for the ships then. Andrew Weir were contracting for the ships.
Clearly, they did not want to be stuck with having ordered ships
and then finding that we did not sign the private finance contract
with Andrew Weir. Otherwise, they would be left holding a very
big baby. As well as having to authorise Andrew Weir to sign the
ship building contracts, we at the same time signed a preliminary
agreement with Andrew Weir which in essence, apart from a whole
lot of technicalities about agreements as to where we were going,
specified that in the event that the private finance contract
was never signed we would take responsibility for the ships that
Andrew Weir had ordered. Otherwise, they would find themselves
with a very big bill and no customers. We duly signed the preliminary
agreement with Andrew Weir I think on 29 December. My team worked
extraordinarily hard between Christmas and New Year. Quite a few
of us turned out, negotiating these bits of paper over that period
and the ship building contract was placed extremely late on the
Friday night of that week with Flensburger and with Harland &
Wolff as planned.

112. They got the Shipbuilding Intervention
Fund?
(Sir Robert Walmsley) Exactly. It is a bit magical
to me but this is a fact. The only thing about the Shipbuilding
Intervention Fund is that the contract cannot be encumbered with
what are known as conditions precedent to make it effective. There
were no such conditions precedent in the contract between Andrew
Weir and the Flensburger yard in Germany, quite straightforward.
There were conditions precedent between Andrew Weir and Harland
& Wolff which had to be satisfied. We had dates when they
were having to be satisfied. Effectively, these were to do with
Andrew Weir and Harland & WolffI hope I am not straying
into commercial areasand those who would provide the finances
to Andrew Weir. There were commercial issues which they wanted
to see squared away before they were prepared to lift these conditions
precedent on the Harland & Wolff contract. We set out that
we wanted these fixed by 31 January. We got to that date. We agreed
to extend it and matters were, not to put too fine a point on
it, trickling on. Meanwhile, I am being asked questions by Admiral
Blackham and others in the Ministry of Defence as to what I am
doing about making this contract effective. It was on 9 March
therefore that the Secretary of State announced that the Ministry
of Defence would itself, given this uncertainty over the ability
of Andrew Weir to finalise that contract with Harland & Wolff,
take over the contract with Harland & Wolff on the same terms.
That is what we are now doing. It is effectively doing the same
thing in a different way. As it happens, Andrew Weir will both
manage the construction of those ships at Harland & Wolff
and will also make the final payment on the ships and take delivery
of the ships as they leave the yard on, as it happens for the
first ship, the very significant date of 21 October 2002.

113. The problem was not with the contract itself;
the problem was the financiers and Weirs themselves wanted guarantees
from Harland & Wolff to deliver on certain dates.
(Sir Robert Walmsley) I think I have gone about as
far as I can.

114. Was the problem with the contract or with
the Harland & Wolff yard?
(Sir Robert Walmsley) It was not dates. It was nothing
to do with the flow of information from Flensburger to Harland
& Wolff. The construction of the ships was never an issue.
It was a commercial matter between AWSR, Harland & Wolff and
AWSR's financial backers.

115. When you were asked to do the scrutiny,
presumably you went into this. It is a fairly unique contract.
You went into it line by line and at the end of the day you found
yourself in a position to recommend to the Secretary of State
yes, this is the line to go along and surely scrutiny should have
picked this up?
(Sir Robert Walmsley) I have asked myself that many
times. It is possible, but some of this is quite delicate because
it affects the commercial position of all the parties involved.
The commercial position of Harland & Wolff was very seriously
changed for the worse during November when you may have noticed
that they had reversed on appeal an arbitration award for a huge
sum of money. What that meant was that Harland & Wolff's commercial
position changed enormously between our announcement in October
and AWSR and their financial backers trying to close the deal.
I am not trying to say that completely excuses me for having failed
to look at both that possibility and what that would lead on to
in terms of the commercial arrangements between these three. In
retrospect, probably I should have pushed that harder. We did
not and the fact that everything went through like a box of birds
with Flensburger meant we now have a very good delivery programme
for Harland & Wolff. I am quite happy with the yard; I have
visited it; I have seen the steel being cut for those Ro-Ro ferries.
The performance will be fine. What we did not envisage was that
change in circumstances about that appeal. We did not envisage
how that would lead to a run-on in terms of commercial confidence.
That is about as far as I can go here.

116. You say that the MoD have taken over the
contract with Harland & Wolff. What does that mean for Weir
and what does it mean for the MoD in relation to Harland &
Wolff?
(Sir Robert Walmsley) What it means is that the MoD
will make the payments to Harland & Wolff during the construction
of the ship except for the last one. It is a good thing to make
Andrew Weir make the last one, which is quite a substantial proportion
of the price. On the ship coming into AWSR's hands, we will then
secure a price for the service which reflects our costs in constructing
those ships and indeed even down to the detail, where I have to
have two or three extra people to manage the contract. We will
expect to see all that come back to us through reduced costs in
the service provided to us. For me, it is doing the same thing
in a different way.

117. On the original contract, you obviously
estimated savings on the PFI scheme and the traditional MoD procurement
scheme. What were those savings?
(Sir Robert Walmsley) I cannot tell you the answer
to that. We are still negotiating the PFI. I can only say that
they were very substantial. We were not, in other words, worried
about whether or not we were going to make the PFI gate. We confirmed
the robustness of that judgment shortly before we placed the contracts
in December and have done so again since, but since we have not
negotiated the PFI contract I am not going to say what the savings
were.

118. Now that the change has come about with
the traditional procurement contract with Harland & Wolff,
have those estimated savings changed?
(Sir Robert Walmsley) No. That is why I said we would
expect to recover it through a reduction in the cost of the sealift
service. After all, we will have gone the extra mile in terms
of making the construction of the ships possible.

119. You say there is an in-service date now
of 2002 or 2003?
(Sir Robert Walmsley) The first ship comes out of
Flensburger in August 2002. It will be in service the next month.
The first ship comes out of Harland & Wolff on Trafalgar Day
in 2002. It will be in service within a week or two of that. I
have looked at the Harland & Wolff schedules and I do not
mind them knowing that I think there is quite a lot of spare in
them. I think they could come forward, even beyond that. We will
get the whole sealift service in service by the end of 2003 compared
with the original planned date of 2005. Some things can happen
quickly. This will.